Pakistan Hounding, SEC Sanctions, Basel, ECB: Compliance

By Carla Main -
Dec 11, 2012

Three million of Pakistan’s richest
income tax evaders will get 90 days to take up a government
amnesty offer after which they will be hounded by inspectors
under the nation’s most ambitious plan to improve its finances.

The cabinet has approved an amnesty proposal targeting 3.1
million people officials identified as having avoided paying
income tax in a country that has one of the lowest collection
rates in the world. Under the plan, each will be able to pay a
one-time 40,000 rupee ($413) penalty on undeclared income and
assets of as much as 5 million rupees, according to Asrar Raouf,
a senior official and spokesman at Pakistan’s tax collection
body, the Federal Board of Revenue.

Raouf said in a Dec. 7 interview at his office in Islamabad
that the collection effort will be the “most dramatic step” to
widen the tax net and the government will pursue tax evaders if
they don’t respond “and cripple their lives.”

The government says the proposals will help Pakistan repair
its finances after recording the highest budget deficit in two
decades in the fiscal year that ended June as it missed its tax
collection target and international assistance plunged. Critics
including rival politicians and former advisers to the finance
ministry say the primary aim is to protect the illegally stashed
wealth of government supporters.

The South Asian nation has to repay about $7.5 billion to
the Washington-based International Monetary Fund by 2015. Only
856,000 people pay income taxes in the country of about 200
million people.

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Compliance Policy

EU Lawmakers Threaten to Reject Basel Law Deal Without Bonus Cap

European Union lawmakers are threatening to reject any deal
on a bank capital law without a cap on banker bonuses that
exceed fixed pay, days before a scheduled meeting with EU
officials.

The Parliament has rejected proposals from governments that
would have allowed awards of as much as five times a banker’s
basic salary, Sharon Bowles, chairwoman of the European
Parliament’s economic and monetary affairs committee, said in an
e-mail. The lawmakers are “taking a firm line” on the ban as
part of negotiations on the Capital Requirements Directive,
Bowles said.

The bonus debate has hampered the EU’s efforts to agree on
the bank capital law, which would implement on overhaul of the
international rulebook for lenders drawn up by the Basel
Committee on Banking Supervision. Legislators are scheduled to
meet with officials from Cyprus, which holds the EU’s rotating
presidency, today and on Dec. 13 in a last-ditch attempt to
reach a deal by the end of the year.

Bankers are facing a backlash from EU lawmakers determined
to cut variable pay as part of a quest to reshape lenders as
utilities rather than money-making machines. Public outrage and
shareholder rebellions have already led some banks to limit
payouts.

The measures, known as Basel III, more than triple the core
capital that lenders must hold compared with the last round of
international rules.

Europe Set for EU Bank Supervisor Deal This Week, Vestager Says

European Union finance ministers will probably agree to
give the European Central Bank supervisory powers over euro-area
banks at a Brussels meeting this week, Denmark’s Economy
Minister Margrethe Vestager said.

Vestager said talks last week laid the groundwork for the
Dec. 12 meeting of EU finance chiefs. Stumbling blocks include
how many banks should automatically face direct ECB oversight,
how to give a voice to non-euro area nations that choose to
participate, as well as voting rules at the European Banking
Authority. Denmark backs a current proposal to have finance
ministers select the head of the ECB supervisory board.

The new supervisory system should be fully up and running
by Jan. 1, 2014, according to a document obtained by Bloomberg
News, though this deadline could be delayed if the ECB decides
it’s not ready. The ECB would have until July 2013 to publish a
detailed plan for how it will work with national regulators,
under the latest proposal.

The current proposal includes an option for participating
non-euro area nations to reject decisions by the ECB Governing
Council that overrule the institution’s bank oversight board.

Separately, Europe’s banks are calling for a review of
tougher financial regulations on the eve of their adoption as
the region sinks into a recession, dimming prospects of raising
$621 billion in capital needed to meet the rules.

Christian Clausen, president of the European Banking
Federation, said the cumulative impact on lenders and the
economy of new rules is unknown because of their piecemeal
creation during the global financial crisis. After correctly
anticipating Europe won’t be ready to implement tougher
standards on schedule, Clausen now wants politicians to allow an
impact study to measure the economic cost of all the
requirements due to be enforced.

The European Union aims to implement collateral and
liquidity recommendations by the Basel Committee on Banking
Supervision during 2013, after a Jan. 1 deadline was pushed
back.

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Compliance Action

HSBC to Pay $1.92 Billion to Settle Money-Laundering Probes

HSBC Holdings Plc (HSBA), Europe’s largest bank, agreed to pay
$1.92 billion to settle U.S. probes of money laundering in the
largest such accord ever.

The settlement includes a deferred prosecution agreement
with the U.S. Department of Justice, the London-based bank said
in an e-mailed statement today. HSBC also said it expects to
complete an undertaking with the U.K. Financial Services
Authority soon, without giving details.

Chief Executive Officer Stuart Gulliver’s attempts to
reduce costs and improve profitability have been hurt by the
U.S. probes and by compensation claims from U.K. clients. A
Senate committee said in July that lax oversight by top HSBC
executives gave terrorists and drug cartels access to the U.S.
financial system. The settlement is the biggest reached in the
U.S. over such allegations, topping the $619 million in
penalties paid in June by the Netherlands’ ING Groep NV.

HSBC has been in talks with U.S. regulators over
allegations it laundered funds of sanctioned nations including
Iran and Sudan, prompting Standard & Poor’s to question whether
the lender is too big to be managed effectively.

In a deferred prosecution agreement, the government allows
a target to avoid charges by meeting certain conditions --
including the payment of fines or penalties -- and by committing
to specific reforms, either under the guidance of a monitor, or
the creation of an internal compliance panel.

“We accept responsibility for our past mistakes,”
Gulliver said in the statement. “We have said we are profoundly
sorry for them, and we do so again. The HSBC of today is a
fundamentally different organization from the one that made
those mistakes.”

HSBC made an $800 million provision in the third quarter to
cover a potential settlement, adding to $700 million it had
already earmarked.

For more, click here.

Eight Ex-Morgan Keegan Mutual Fund Directors Sanctioned by SEC

Eight former directors overseeing mutual funds for Morgan
Keegan & Co. were sanctioned by U.S. regulators for allowing
assets backed by subprime mortgages to be overvalued as the
housing market collapsed in 2007.

The action, filed in administrative court by the Securities
and Exchange Commission yesterday, follows a related $200
million settlement with Morgan Keegan, a subsidiary of Raymond
James Financial Inc., last year and sanctions against two
employees in 2010. The securities at issue made up the majority
of five funds’ net asset values, in most cases more than 60
percent, the SEC said.

The eight directors, who were responsible for determining
the fair value of fund securities that lacked readily available
market quotations, delegated valuation tasks to a committee
without providing meaningful guidance on how the assets should
be priced, the SEC said.

Blair, Johnson, McFadden, Pittman, Stone and Willis acted
“diligently and in good faith” and intend to contest the SEC’s
allegations, which they “emphatically deny,” according to a
statement from their attorney, Stephen Crimmins of K&L Gates in
Washington. An e-mail seeking comment to Peter Anderson, an
attorney for Alderman and Morgan, wasn’t immediately answered.

Raymond James, based in St. Petersburg, Florida, acquired
Morgan Keegan from Regions Financial Corp. in April for about
$1.2 billion. The five funds at issue in the SEC’s order are RMK
High Income Fund, RMK Multi-Sector High Income Fund, RMK
Strategic Income Fund, RMK Advantage Income Fund and Morgan
Keegan Select Fund.

Canada Banking Regulator Releases Basel III Capital Rules

Canada’s banking regulator released final Basel III capital
adequacy rules that aim to bring the country’s lenders into line
with new global standards beginning next year.

The rules would require Canadian banks to hold a minimum
buffer of 7 percent common equity by the first quarter of next
year, the Ottawa-based Office of the Superintendent of Financial
Institutionssaid in a release yesterday. Provisions related to
add-on charges for counterparty risk on over-the-counter
derivatives will be implemented by the first quarter of 2014 in
order not to disadvantage Canadian banks.

Some nations are struggling to meet a Jan. 1, 2013,
deadline for starting to apply the revised Basel rules, which
were drawn up by global regulators to prevent a repeat of the
financial crisis that followed the collapse of Lehman Brothers
Holdings Inc. Countries have six years to phase in the changes.

In addition to the common equity targets, the bank watchdog
said it expects all banks to hold a minimum 8.5 percent “all-
in” total Tier 1 capital and 10.5 percent total capital by
2014.

U.K. Fraud Prosecutor Arrests Three Men in Libor-Rigging Probe

The U.K. Serious Fraud Office and City of London Police
made the first three arrests in global probes of tampering with
benchmark interest rates, such as the London interbank offered
rate.

The men, ranging in age from 33 to 47, are all British
nationals living in the U.K., the SFO said in an e-mailed
statement. The agency and police also searched three homes in
Surrey and Essex.

Global authorities are investigating claims that more than
a dozen banks altered submissions used to set benchmarks such as
Libor to profit from bets on interest-rate derivatives or make
the lenders’ finances appear healthier. UBS AG is expected to
face a fine as early as this week that may surpass the record
290 million pounds ($466.6 million) Barclays Plc (BARC), the U.K.’s
second-biggest bank, paid in June to settle claims it attempted
to manipulate Libor.

David Jones, an SFO spokesman, declined to comment beyond
the statement. David Green, the director of the SFO, said in an
interview last month the agency is considering levying
conspiracy-to-defraud charges against individuals.

EU Regulators Examining Competition in Food-Retail Industry

The European Commission said it’s studying competition in
the food retail industry and will focus on increased
concentration and the use of own-brand products.

The final report is expected by the end of next year, it
said in an e-mailed statement from Brussels today.

Courts

Ex-Trader on Trial Over $971 Million Loss at Caisse D’Epargne

Former Caisse d’Epargne trader Bruno Picano-Nacci denied he
exceeded his authority when he took positions that led to a 751
million-euro ($971 million) loss, after Paris prosecutors
recommended a suspended sentence.

A lawyer for Picano-Nacci, charged with breach of trust,
told judges at the close of his trial that his client made risk-
management mistakes, while denying he hid those mistakes from
superiors or acted outside his mandate.

Caisse d’Epargne, now part of Groupe BPCE, France’s second-
largest bank by branches, announced the loss in October 2008.
Prosecutor Serge Roques advised the court during closing
arguments to find him guilty and give him a two-year suspended
jail sentence. Under French law, Picano-Nacci faces as much as
three years in jail and a 375,000-euro fine if found guilty. The
37-year-old said at the trial’s opening he’s unemployed, has
four children and that his wife earns about 2,000 euros a month.

Picano-Nacci joined the bank in 2003 and took on the
derivatives portfolio for Caisse d’Epargne’s eight-man
proprietary-trading business in 2006. The bank is seeking 315
million euros from the trader, what the bank calculated as the
loss from criminally bad investments rather than just poor
portfolio management, lawyer Jean Reinhart said.

Russia May Tax Income From Foreign Bank Deposits, Vedomosti Says

The Moscow City Court upheld a ruling of the lower court
saying that Russia may tax income from foreign bank deposits,
Vedomosti reported, citing an unidentified court official.

According to the Tax Code, Russians are exempt from paying
the 13 percent income tax on earnings from deposits paying rates
that don’t exceed the country’s refinancing rate plus the 5
percent on ruble accounts and the 9 percent on deposits in
foreign currencies. Existing legislation doesn’t make the
distinction between foreign and domestic banks, according to
Vedomosti.

The court agreed with tax authorities that financial
institutions are recognized as banks only if they have an
operating license from Russia’s central bank. The income tax
should be levied on the entire income earned from deposits at
foreign banks, Vedomosti reported

The full text of the court decision isn’t yet complete,
according to the newspaper.